Important Update!
Revocable and Irrevocable Trust Rule Change Effective April 1, 2024
Mortgage Servicing Accounts Rule Change Effective April 1, 2024
All the rules discussed in this section are current through March 31, 2024. The FDIC approved changes, on January 21, 2022, to the deposit insurance rules for revocable trust accounts (including formal trusts, POD/ITF), irrevocable trust accounts, and mortgage servicing accounts. For most trust depositors (those with less than $1,250,000), the FDIC expects the coverage levels to be unchanged. However, the new rule may reduce coverage for those depositors who have placed more than $1,250,000 per owner in trust deposits at one insured institution. The new rule (PDF) combines the revocable and irrevocable trust account categories into one insurance category, eliminates some complex rules, and utilizes a simple insurance calculation. You can learn more about the new changes, including for mortgage servicing accounts, by reviewing this fact sheet (PDF). The changes are effective April 1, 2024, giving bankers and depositors time to adjust to the new rule, including making any changes to avoid a potential reduction in coverage. We suggest depositors and bankers review the new rules for time deposits with maturities beyond April 1, 2024.
Questions?
You can submit your inquiry using the FDIC Information and Support Center.
You can also call the FDIC at (877) 275-3342 or (877) ASK-FDIC.
For the hearing impaired call (800) 877-8339.
Revocable Trusts
A revocable trust account is a deposit account owned by one or more people, that designates the deposited funds will pass to one or more beneficiaries upon the owner's death. Each owner's coverage is calculated separately.
A revocable trust can be revoked, terminated, or changed at any time at the discretion of the owner(s). Revocable trusts can be formal or informal.
Irrevocable Trusts
An irrevocable trust account is a deposit account titled in the name of an irrevocable trust, for which the owner (grantor/settlor/trustor) contributes deposits or other property to the trust, but gives up all power to cancel or change the trust.
Irrevocable trusts are also established following the death of an owner of a revocable trust, or by statute or judicial order.
Which type of trust account do you want to know about?
Does the trust meet ALL three of these criteria?
1
The account title at the bank indicates that the account is a trust. For a Formal Revocable Trust, the account title uses such terms as:
- Living trust
- Family trust
For an Informal Revocable Trust, the account title uses such terms as:
- Payable on death (POD)
- Totten trust
- As trustee for (ATF)
- In trust for (ITF)
Or similar language, including the word “trust” in the account title.
- At the time a bank fails, the beneficiary must be entitled to his or her interest in the revocable trust assets upon the grantor's death. The FDIC recognizes life estate and remainder beneficiaries, but not contingent beneficiaries.
- The beneficiaries are living individuals and/or an IRS-qualifying charity or nonprofit organization.
2
At the time a bank fails, the beneficiary must be entitled to his or her interest in the revocable trust assets upon the grantor’s death. The FDIC recognizes life estate and remainder beneficiaries, but not contingent beneficiaries.
In calculating deposit insurance coverage for revocable trusts, the FDIC combines the interests of all beneficiaries the owner has designated in all formal and informal revocable trust accounts at the same bank.
3
The beneficiaries are living individuals and/or an IRS-qualifying charity or nonprofit organization.
- At the time a bank fails, the beneficiary must be entitled to his or her interest in the revocable trust assets upon the grantor's death. The FDIC recognizes life estate and remainder beneficiaries, but not contingent beneficiaries.
- The beneficiaries are living individuals and/or an IRS-qualifying charity or nonprofit organization.
In calculating deposit insurance coverage for revocable trusts, the FDIC combines the interests of all beneficiaries the owner has designated in all formal and informal revocable trust accounts at the same bank.
How many beneficiaries does the trust/account owner designate?
When a revocable trust owner designates five or fewer
beneficiaries, the owner's trust deposits are insured up to
$250,000 for each unique beneficiary.
This rule applies to the combined interests of
all beneficiaries the owner has designated in all formal and
informal revocable trust accounts at the same bank. When there
are five or fewer beneficiaries, maximum deposit insurance
coverage for each trust owner is determined by multiplying
$250,000 times the number of unique beneficiaries, regardless
of the dollar amount or percentage allotted to each unique
beneficiary.
Maximum insurance coverage for a trust owner when there are five or fewer unique beneficiaries
| Number of Unique Beneficiaries | Maximum Deposit Insurance Coverage |
|---|---|
| 1 Beneficiary | $250,000 |
| 2 Beneficiary | $500,000 |
| 3 Beneficiary | $750,000 |
| 4 Beneficiary | $1,000,000 |
| 5 Beneficiary | $1,250,000 |
Example 1:
Multiple POD (payable upon death) accounts for one owner where there are five or fewer unique beneficiaries.
Example 2:
Multiple types of revocable trust accounts with five or fewer unique beneficiaries.
John has three informal trust/POD accounts at the same insured bank. For each of these accounts, John has designated the same two unique beneficiaries, Jack and Janet.
Maximum insurance coverage for these accounts = $250,000 X 2 beneficiaries = $500,000
John is fully insured.
Example POD accounts for one owner when there are five or fewer unique beneficiaries
| Account Title | Owner | Beneficiaries | Deposit Type | Account Balance |
|---|---|---|---|---|
| John Jones POD | John | Jack, Janet | MMDA | $10,000 |
| John Jones POD | John | Jack, Janet | Savings | $20,000 |
| John Jones POD | John | Jack, Janet | CD | $470,000 |
| Total | $500,000 | |||
| Amount Insured | $500,000 | |||
| Amount Uninsured | $0 | |||
When a revocable trust owner designates five or fewer beneficiaries, the owner's share of each trust account is added together and the owner receives up to $250,000 in insurance coverage for each unique beneficiary. Formal and informal revocable trust accounts held by the same owner(s) are added together prior to determining coverage.
Lisa is the single owner of one informal trust/POD account with a balance of $450,000. She also co-owns a formal living trust account with her husband, Paul, with a balance of $700,000.
- Paul's share: $350,000 (50% of Account 1)
- Lisa's share: $800,000 (50% of Account 1 and 100% of Account 2)
Lisa owns 50% of the living trust deposit and 100% of the POD deposit, totaling $800,000. She has three unique beneficiaries between the two trust accounts.
Maximum insurance coverage of Lisa's interests =
$250,000 x 3 beneficiaries = $750,000
$50,000 is left uninsured.
Paul owns 50% of the living trust, totaling $350,000. He has two unique beneficiaries designated in the trust.
Maximum insurance coverage of Paul's interests =
$250,000 x 2 beneficiaries = $500,000
Paul's interests are fully insured.
Example Multiple types of revocable trust accounts with five or fewer unique beneficiaries
| Account Number | Account Owner(s) | Account Beneficiaries | Account Balance |
|---|---|---|---|
| 1 | Paul & Lisa Li (Living Trust) | John and Sharon Li | $700,000 |
| 2 | Lisa Li (POD) | Sharon and Bill Li | $450,000 |
| Owners | Beneficiaries | Owner's Share | Amount Insured | Amount Uninsured |
|---|---|---|---|---|
| Paul | John, Sharon | $350,000 | $350,000 | $0 |
| Lisa | John, Sharon, Bill | $800,000 | $750,000 | $50,000 |
| Total | $1,150,000 | $1,100,000 | $50,000 | |
If you have any questions regarding deposit insurance coverage for your revocable trust accounts with five or fewer beneficiaries, please call the FDIC at 1-877-ASK-FDIC (1-877-275-3342).
Do all beneficiaries have an equal interest in the trust?
Equal Beneficial Interests
When all the beneficiaries are assigned equal amounts in the trust, the trust owner receives insurance coverage up to $250,000 for each unique beneficiary.
Example Maximum insurance coverage for each revocable trust owner when there are six or more unique beneficiaries with equal beneficial interests
| Number of Unique Beneficiaries | Maximum Deposit Insurance Coverage |
|---|---|
| 6 Beneficiaries with Equal Interests | $1,500,000 |
| 7 Beneficiaries with Equal Interests | $1,750,000 |
| 8 Beneficiaries with Equal Interests | $2,000,000 |
| 9 Beneficiaries with Equal Interests | $2,250,000 |
| 10+ Beneficiaries with Equal Interests | Add up to $250,000 for each additional unique beneficiary |
Unequal Beneficial Interests
When beneficiaries do not have equal interests, the owner's revocable trust deposits are insured for the greater of either:
- The sum of each beneficiary's actual interests up to $250,000 for each unique beneficiary, OR
- A minimum coverage amount of $1,250,000.
Determining insurance coverage can be complex when a revocable trust has six or more unique beneficiaries whose interests are unequal. If you have one or more revocable trust accounts with six or more beneficiaries with unequal interests, please contact the FDIC with any questions at 1-877-ASK-FDIC (1-877-275-3342).
Note on formal revocable trust accounts:
An owner who designates a beneficiary as having a life estate interest in a formal revocable trust is entitled to insurance coverage up to $250,000 for that beneficiary. A life estate beneficiary is a beneficiary who has the right to receive income from the trust or to use trust deposits assets during the beneficiary's lifetime, where other beneficiaries receive the remaining trust deposits assets after the life estate beneficiary dies. Contingent or secondary beneficiaries, however, are not included in the calculation.
The deposit may not be insured as a revocable trust account, but may be insured under the single ownership category.
An irrevocable trust can be established three ways:
- By judicial order,
- By statute, or
- By death of the owner of a revocable trust.
Note: If the owner of a revocable trust dies, the trust becomes irrevocable but may still be insured as a revocable trust.
To be eligible for coverage under FDIC deposit insurance, an irrevocable trust should meet the following four criteria:
- The trust must be valid under state law;
- The insured bank's deposit account records disclose the existence of the trust relationship;
- The beneficiaries and their interests in the trust are identifiable from the bank's deposit account records or from the trustee's records; and
- Each beneficiary's interest is a non-contingent interest, meaning there are no conditions that the beneficiary would need to meet to receive their allocation under the terms of the trust upon the death of the grantor(s).
If ALL of these four criteria are met, each beneficiary's non-contingent interest is insured up to $250,000. There is separate deposit insurance coverage for contingent interests and grantor retained interests.
It is uncommon for an irrevocable trust to meet these four criteria because most beneficiaries have contingent interests, which is why deposit insurance for most irrevocable trusts is capped at $250,000 at each FDIC-insured bank.
If you have a deposit insurance coverage question, please visit the FDIC Information and Support Center or call 1-877-ASK-FDIC (1-877-275-3342).